XIAMEN (BLOOMBERG) – Luckin Coffee’s chairman, Charles Lu Zhengyao, was ousted by shareholders from the scandal-plagued Chinese company, just days after surviving an effort by some directors to strip him of control, Chinese web portal 163.com reported, citing unidentified sources.

Three other board directors including Sean Shao were also removed at an extraordinary shareholders meeting in Beijing on Sunday (July 5), according to the report, and Ying Zeng and Jie Yang will be added as independent board directors.

A company representative did not immediately respond to a request for comment.

The removal of Lu is the culminating step in a major shakeup of top management since fabricated transactions dating back to April 2019 came to light earlier this year.

The coffee chain already fired its chief executive and chief operating officers, among other employees, in May as it came under investigation by Chinese and US regulators.

The voting result ended a temporary reprieve for Lu, who remained chairman after a proposal to remove him from the startup he founded wasn’t approved by the required two-thirds of directors at a special meeting Thursday.

According to Luckin’s Articles of Association, a director can be removed by shareholders or other board directors.

Luckin’s executive shakeup is an unusual case in China, where it’s rare for a private startup to oust a founder and chairman, who is considered the soul of the firm. Lu and others were removed in a bid to distance the company from the financial scandal and allow it to continue operating more normally.

Lu’s dismissal comes after Luckin said it substantially completed an internal investigation into the financial irregularities. Once considered among China’s brightest growth stories, the chain has seen its stock become almost worthless, plunging 94% this year.

The company said last week its internal investigation concluded that net revenue last year was inflated by about 2.12 billion yuan (US$300 million) while costs and expenses were boosted by 1.34 billion yuan. After the conclusion of the investigation, a majority of directors had requested Lu’s resignation.

BANKS FACE $300 MILLION SHORTFALL ON LUCKIN MARGIN LOANS

Luckin’s fall has ensnared banks including Credit Suisse Group AG and Morgan Stanley as they face a US$300 million shortfall on margin loans made to Lu.

The scandal is also a black eye for China Inc as the US Congress moves closer to passing legislation that could bar Chinese companies from trading on US stock exchanges.

Luckin said it would fire a dozen workers and discipline 15 others following the internal investigation. It already dismissed CEO Jenny Zhiya Qian, COO Jian Liu and some employees who reported to them in May after uncovering the scheme that funnelled funds to the company from several third parties with links to the participants. The board said it fired the executives based on evidence showing their participation in the false transactions.

Lu became a billionaire after his fast-growing Chinese chain went public in the US, but much of his wealth was wiped out by the plunge in Luckin’s stock.

Lu last month resigned as chairman of Car Inc, China’s biggest rental-car fleet operator, as scrutiny increased over Luckin and the accounting scandal. A Beijing court has frozen Lu’s entire stake in Car Inc’s parent, UCAR Inc, for judicial reasons.

He has drawn criticism for applying an aggressive cash-burning expansion strategy to all his startup projects, as the model helps quickly expand the businesses and gain market share at the expense of profitability.

Luckin, founded in 2017, raised $645 million in its US IPO last year and counted BlackRock among its backers. It took direct aim at Starbucks in China, with a strategy to open more stores in two years than the Seattle-based heavyweight has in two decades.